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Tiwari Study on Mutual Funds Noted

Recent studies have alleged that investors actually have some skill at picking funds and fund managers, but a paper set for publication later this year says that's bunk. Over the past few years, academics have found that funds with positive cash flows tend to outperform those with negative cash flows, at least in the short term. Their take: Investors tend to have some skill shifting money to better funds, so it's sensible that more money is invested with active managers than index funds even though the former tend to trail the latter. But Iowa State Professor Travis Sapp and University of Iowa professor ASHISH TIWARI show that this short-term boost is mostly explained by fleeting momentum for the stocks held by funds that happen to have performed well lately. So why do so many people bother with active managers? "The puzzle remains," they write. Tiwari co-authored the paper, "Does Stock Return Momentum Explain the 'Smart Money' Effect?" is the online edition to the WALL STREET JOURNAL.

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